Earnings Review: Activision Blizzard Inc.
- The gaming company missed both on revenue and earnings.
- Management raised the dividend and also announced a share buyback.
- The gaming industry is growing and Activision Blizzard is in the middle of the circular trend.
Activision Blizzard, Inc.(ATVI) engages in the development and publication of interactive entertainment. It operates through the following segments: Activision Publishing, Inc, Blizzard Entertainment, Inc., and Other. The Activision Publishing, Inc. segment delivers online games through retail and digital online channels available in personal computer, mobile and tablet devices, to a range of games including children, adults, and among core games as well as mass-market consumers. The company missed on both on earnings and revenue. However, management made moves that reflect that the stock is undervalued and still has much more growth.
The company reported revenues of $2.01 billion which was a miss as investors were expecting $2.35 billion. Activision Blizzard also missed on the bottom line as they reported earnings of $0.65/share versus analyst expectations of $0.73/share. I expected the company to report $2.38 billion in revenue and $0.75/share in earnings. The estimate got me a ranking of 31 out of 182 analysts on now Estimize. Although Activision missed revenues the company grew its revenue by 48.9%. In terms of full year revenue, Activision made $6.6 billion in 2016 compared to $4.7 billion made in 2015. In terms of the revenue breakdown for the quarter, the company made $697 million in product sales (down 2.1%) and licensing & subscriptions brought in $1.318 billion(up 105%). Activision’s subscription business is growing really well. In terms of metrics the company reported good numbers. Activision has 447 million monthly active users and the company’s acquisition of King Digital(the creator of Candy Crush) is adding to the company’s earnings.
To show that the company’s acquisition is paying off well Activision Blizzard generated a tonne of cash. In 2016, Activision generated $2.16 on operating cash flow(71% year over year growth) and $859 million during its last quarter. Given the robust cash flow management increased its quarterly dividend by 15% to $0.30/share. The company also announced a share repurchase of $1 billion which is a reflection that management thinks the company’s stock is undervalued. Gaming is still a growing industry and with the franchises that Activision Blizzard has the company has much more room to grow. Tim O’Shea an analyst at Jefferies has a $55/share price target for the stock and still thinks Call of Duty will continue to generate cash for Activision.
Verdict/Grade: Although the company missed on both earnings and revenue the stock was priced for perfection. This was a good quarter from the company and management feels the stock is undervalued. Activision Blizzard’s stock has more room to run although the stock went up 16% after the quarter. If the stock passes $50/share I will be taking a bit off profit off the table. Overall it was a B+ quarter.
Disclosure: Cresco has a position in Activision Blizzard Inc.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.